Active multi-asset credit mandates come out on top as bond market uncertainty lingers
Uncertainty around the fixed income outlook has unsettled some asset owners. But those who have embraced active management have been able to weather market risks more effectively (AP Photo/Richard Drew)
As central banks reassess the path of interest rates in response to the Iran conflict and oil-related inflationary risks, uncertainty around the fixed income outlook has unsettled some asset owners. But those who have embraced active management have been able to weather market risks more effectively, say investment consultants and asset managers.
Mathias Neidert, head of fixed income at bfinance, says the disruptions to oil and gas supplies since the onset of US and Israeli strikes on Iran at the end of February have pushed up commodity prices, creating inflationary risks.
Higher inflationary expectations, in turn, have driven up forward rates, although markets have taken some comfort from the agreed ceasefire in early April.
John Wyn-Evans, head of market analysis at Rathbones, says the immediate couple of weeks following the tentative ceasefire are "as much about fragility as [they are] about resolution".
He adds that investors will be looking at "whether negotiations translate into any concrete progress rather than simply buying time" alongside developments around the opening of the Iran-controlled Strait of Hormuz, a major chokepoint in global oil supplies.
Clients are taking a "careful assessment" of the situation, Neidert adds, with many still wary over inflationary risks given the significant post-pandemic surge in prices in 2022. That, and the monetary policy reactions that followed, were "hugely damaging for fixed income portfolios", he says.
However, some institutional investors have since built more flexibility into fixed income portfolios, with many turning to active management to allow for a more reactive approach.
"Those who have built more flexibility into their portfolio, who have allowed their fixed income portfolio to be more actively managed, are probably coming out on top," Neidert says.
Investors embrace active credit mandates
External mandates allowing for benchmark deviations will also enable investors to "capitalise on market recoveries", says Neidert. "Markets evolve a lot more rapidly than they used to, so corrections are more and more sudden."
A host of investors have been leaning more on active credit mandates, or expressing interest in actively managed credit mandates.
In a recent review of its investment performance, the $9bn Surrey Pension Fund praised the performance of the $162bn Border to Coast's Multi-Asset Credit Fund, which it said had outperformed its benchmarks. In a February 2026 fact sheet, Border to Coast revealed the fund had achieved returns in excess of 10 per cent for 2025.
In April, MandateWire reported that a Dach insurer had tendered for an active, $59mn long-only global and European high-yield corporate bond mandate, with potential for an extra 10 per cent exposure to investment-grade bonds.
“Those who have built more flexibility into their portfolio, who have allowed their fixed income portfolio to be more actively managed, are probably coming out on top”
The previous month saw the defined contribution segment of the $126mn Baptist Pension Scheme switch passive bond allocations in two of its funds with an active credit allocation to M&G's actively managed Sustainable Total Return Credit Investment Fund.
In February, MandateWire reported that the German consultancy Alpha portfolio advisors was looking to invest $141mn in active, long-only, euro-denominated investment-grade credit. The mandate excluded securitised or convertible bonds.
Katie Trowsdale, head of public market solutions in the multi-asset investment solutions team at Aberdeen Investments, says the recent rise in bond yields linked to the Iran conflict has "underlined how quickly interest rate expectations can shift".
Given the pace of market changes, which can be difficult for investors to track, Trowsdale says "having a multi-asset portfolio really can play a significant role in helping manage that volatility".
"Active oversight of allocations to such bonds is essential in today's environment as markets continue to reassess how quickly central banks will cut interest rates, which is where a multi-asset portfolio can come into play," she adds.
Wider diversification of credit and fixed income
Meanwhile, portfolio diversification and the rise of private debt have been embraced by most institutional investors, Neidert says.
He adds that some investors previously had "a lot of duration on the bond side", which is now "probably not as high as it used to be", helping to tamp down investment risk.
While many asset owners have significant allocations to government bonds, including endowments and defined benefit pension schemes, private debt and shorter-duration investments have meant asset owners tend to be "fairly well diversified", Neidert explains.
Bfinance's fourth quarter report into manager trends, published shortly before the Iran conflict broke out in February, noted strong interest in "high-quality" developed market fixed income.
The report said some interest geared towards multi-sector strategies in fixed income, which it said are "considered by investors seeking additional yield, but with a more flexible approach".
Multi-sector fixed income comprised 9 per cent of all fixed income searches tracked by the consultancy in 2025.
Demand was particularly strong for investment-grade credit, which accounted for more than half (55 per cent) of fixed income manager searches in 2025. High-yield loans represented 36 per cent.
Bfinance said in the report that additional portfolio flexibility "allows investors to dynamically access the full spectrum of fixed income assets beyond traditional corporate bonds". This includes potential allocations to asset-backed securities, loans and collateralised loan obligations.
The report added that in an environment of tight spreads in corporate credit, institutions have sought out allocations "to high-quality fixed income assets".
It also found greater interest in more esoteric types of fixed income, including catastrophe bonds, which have "continued to flourish" given solid yields and low correlation with other fixed income assets.